The real challenges facing the national budget

Opinion

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By Warren Nyamugasira

 

Every year mixed emotions of euphoria and anxiety surround the reading of the budget. 2014/15 budget is no exception.  

 

Experts were assembled to analyse every aspect of the budget as the minister brought it to the nation and the world in full glare of the media, honorables and Excellencies, some of whom, used the opportunity to take a nap.

 

Miles of space were dedicated by the papers, television and radio stations to help the readership and listenership understand the implications of the budget provisions. This euphoria, however, should not mask the real challenges Uganda faces in trying to strike a balance 

 

The biggest challenge of all is size of the “cake”. Maria Kiwanuka can only distribute what resources the relevant authorities can mobilise.

 

A national budget is a plan to raise and allocate resources. At this stage, when the minister reads the budget, resources, particularly domestic revenues are mere estimates of what the government hopes to raise in the course of the year.  

 

In the recent past, including the financial year just ended, there have been revenue collection shortfalls, which the Government accommodates by cutting budgets and through additional borrowing or as is more likely to be the case, a combination  of the two.

 

The Government also receives donor support in form of grants and loans at less than the commercial interest rates and can borrow at market rates, if there are strategic investments that the Government must undertake. 

 

Whichever way one looks at it, the national cake is small, even minuscule when compared to the range of needs and interests that have to be satisfied. Inevitably this means that priorities within priorities have to be made and this cannot be a public affair.

 

For example, well before the budget was read, the President had already indicated where the FY2014/15 budget priorities will be – in infrastructure, agriculture and education. Beyond that, we know that there are other priorities such as defence and security, public administration and others.

 

For years, there have been calls by a cross-section of Ugandans for reductions to be made in these expenditure centres in favour of education, health and agriculture but such calls have always fallen on deaf ears. 

 

This financial year’s budget is facing a double dilemma: serious shortfalls in domestic revenue collection and donor cuts in aid.

 

Yet, the publicly announced intention of the Government is to increase the budget from sh13trillion of FY2013/14 to 14.2trillion for FY2014/15. In the face of falling revenue collection and aid cuts, two options are open to the Government. First is to levy new taxes.

 

The Presidential Advisory Committee on the budget has already recommended areas to tax, including processed milk products, land sales, fuel and paraffin, sugar, private schools and women’s wigs as well as computers. Member of Parliament, Geoffrey Ekanya muted a tax on mobile phone calls but it was quickly shot down by fellow MPs.

 

As such there is bound to be uproar over new taxes as many Ugandans think they are already over-taxed. Speaking on behalf of the opposition, the Democratic Party president had already warned the Government “against increasing the already high tax burden on Ugandans by introducing new taxes”.

 

While Keith Muhakanizi, the highest civil servant at the Ministry Finance, has vowed to go through with some of the new tax measures, we know that if they threaten 2016 votes, political economy considerations will kick in, particularly because we know that taxes levied in response to revenue shortfalls tend to be collected recklessly.  

 

The fate of the Graduated Tax, which was summarily removed for political expediency, is still fresh in people’s memories.

 

As an alternative, of course we know that government will increase its borrowing, despite warnings by civil society to “tread carefully on accumulating more debt”.

 

Another challenge is the dilemma of a two-speed economy. In Uganda, the informal, unregistered and untaxed sector is still dominant and is booming.

 

However, the elite do not really understand how to woo the drivers of this sector in order to bring them into the club of tax-payers. Sitting in Kampala and proposing to the President what to tax and what not to tax is an exercise in futility.

 

New thinking is required, may be taking advantage of the forthcoming formulation of the second National Development Plan, to find ways to make players in the informal sector make their requisite contribution to growing the national cake. Churches collect billions from this sector every week; cultural institutions collect “bricks” from actors in the same sector.

 

Why can’t the Government do the same? May be time has come to take civic education seriously to help every Ugandan citizen, individual and corporate, to appreciate that to enjoy rights and freedoms, one must also honour their obligations and responsibilities. 

The writer is an economist